Questions from General Investment

Q: Yields on short-term bonds tend to be more volatile than

Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you have estimated that the yield on 20-year bonds changes by 10 basis points for every 15-basis-point...

Q: A corporation plans to issue $10 million of 10-year

A corporation plans to issue $10 million of 10-year bonds in three months. At current yields the bonds would have modified duration of 8 years. The T-note futures contract is selling at F0 = 100 and h...

Q: a. If the spot price of gold is $1,

a. If the spot price of gold is $1,500 per troy ounce, the risk-free interest rate is 2%, and storage and insurance costs are zero, what should be the forward price of gold for delivery in one year? U...

Q: If the corn harvest today is poor, would you expect this

If the corn harvest today is poor, would you expect this fact to have any effect on today’s futures prices for corn to be delivered (post-harvest) two years from today? Under what circumstances will t...

Q: FinCorp’s free cash flow to the firm is reported as $205

FinCorp’s free cash flow to the firm is reported as $205 million. The firm’s interest expense is $22 million. Assume the corporate tax rate is 21% and the net debt of the firm increases by $3 million....

Q: A U.S. exporting firm may use foreign exchange futures

A U.S. exporting firm may use foreign exchange futures to hedge its exposure to exchange rate risk. Its position in futures will depend in part on anticipated payments from its customers denominated i...

Q: Suppose that the price of corn is risky, with a beta

Suppose that the price of corn is risky, with a beta of .5. The monthly storage cost is $.03 per bushel, and the current spot price is $5.50, with an expected spot price in three months of $5.88. If t...

Q: Suppose the U.S. yield curve is flat at 4

Suppose the U.S. yield curve is flat at 4% and the euro yield curve is flat at 3%. The current exchange rate is $1.20 per euro. What will be the swap rate on an agreement to exchange currency over a 3...

Q: Firm ABC enters a 5-year swap with firm XYZ to

Firm ABC enters a 5-year swap with firm XYZ to pay LIBOR in return for a fixed 6% rate on notional principal of $10 million. Two years from now, the market rate on 3-year swaps is LIBOR for 5%; at thi...

Q: Suppose that at the present time, one can enter 5-

Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. For example, a firm...